Kéta Kosman on Lumber, Trade, and the Market

Author(s): Scott Douglas Jacobsen

Publication (Outlet/Website): A Further Inquiry

Publication Date (yyyy/mm/dd): 2025/06/11

Keta Kosman is the owner and publisher of Madison’s Lumber Reporter, a leading resource for softwood lumber pricing and market analysis. Based in Vancouver, British Columbia, Keta holds a BA in Political Science and Philosophy from the University of British Columbia and has extensive experience in graphic design, publishing, and the lumber industry. Since 2008, she has provided critical insights into North American lumber markets through Madison’s Lumber Reporter and related publications. A recognized industry analyst, Keta specializes in lumber pricing, sawmill capacity, forestry trends, and trade between Canada and the U.S. She is also active in environmental initiatives. Kosman discusses factors behind the U.S. South surpassing Canada in softwood lumber production. Seasonal cycles influence lumber pricing, with low prices in winter and rising demand by spring. Southern yellow pine’s volume increase outpaces Canada’s SPF due to U.S. homebuilding demand and investments in U.S. sawmills. Trade barriers like duties disproportionately affect Canadian mills, driving diversification to Asia. Environmental events such as wildfires and hurricanes impact timber supply and reconstruction needs. Kosman emphasizes the divisive nature of duties, driven by U.S. special interest groups, and highlights the opaque negotiation process over settlements involving billions in duties.

Scott Douglas Jacobsen: What factors are involved in the U.S. South surpassing Canada in softwood lumber production capacity?

Keta Kosman: The volume of lumber is a key factor in determining pricing at any given time. U.S. and Canadian housing markets generally follow seasonal cycles, which cause annual fluctuations in lumber prices. The year’s lowest prices typically occur toward the end of the year, during winter. Around this time of year and into February, prices rise as homebuilders prepare for spring. Large companies, especially those constructing 100 to 150 homes at a time, aim to have the lumber they need onsite before breaking ground. Consequently, whether on the supply side or the demand side, stakeholders are always looking ahead. They base their current purchases and investments in log procurement on their expectations for the next three months.

Jacobsen: Is this generally done seasonally? Do they start planning at the beginning of the year and then project for spring, summer, fall, and winter?

Kosman: Yes, that’s correct. Even though housing construction data may still indicate strong activity in June, most companies have already purchased the lumber they need by then. As a result, while construction continues, demand slows, and prices typically soften around June.

Jacobsen: What are the most important factors regarding how the U.S. South surpasses Canada in softwood lumber production capacity?

Kosman: There are several factors to consider. When you see claims that southern yellow pine manufacturing exceeds western spruce-pine-fir (SPF) production in volume, it’s important to note that such comparisons are not always apples-to-apples. To make a fair comparison, you should compare the entire U.S. South to the entire North or the U.S. Southwest to the Northwest.

Generally speaking, the volume increase in southern yellow pine lumber manufacturing has been significantly greater than in eastern or western spruce species, such as northern varieties.

One major factor is that large operators in British Columbia anticipated a reduction in timber supply due to the mountain pine beetle infestation. To compensate, they shifted some of their manufacturing focus from SPF by acquiring and taking over mills in the U.S. South.

As I mentioned, U.S. homebuilding is by far the largest consumer of lumber. However, one critical point often overlooked is that homebuilders do not typically prefer southern yellow pine for construction framing. They tend to avoid it because of its physical properties.

To explain in detail, the relationship between the raw log and its final application is quite direct. Homebuilders find that SPF lumber from the Pacific Northwest, eastern Canada, or the northeastern U.S. is straight, clear, and strong—qualities essential for framing. In contrast, southern pine studs are more likely to split or warp when nails are driven into them, particularly when applying drywall. For this reason, southern pine is not widely used for framing construction.

Instead, southern pine wood is primarily used for finishing, siding, outdoor purposes, and decking. Its porous nature allows it to take treatment well, and its attractive yellow grain makes it ideal for outdoor applications.

Therefore, the volume of 2×4 manufacturing using southern pine does not serve the same purpose for end users as SPF 2×4 lumber. I hope this distinction is clear.

Jacobsen: Regarding investments in new sawmills in the U.S. South, have these developments influenced the overall distribution of lumber production capacity?

Kosman: Southern pine lumber is almost entirely a domestic U.S. product, with very little, if any, making its way into Canada. In contrast, SPF lumber, whether from Washington State, Oregon, British Columbia, or Alberta, is widely transported. SPF travels across Canada and the U.S. and is also exported overseas. Eastern SPF typically goes to Europe, while Western SPF is shipped to Asia. Southern pine, on the other hand, is not commonly exported as lumber. However, southern pine logs are significantly exported, particularly to Asia. This dynamic illustrates the difference in the movement and utilization of these products.

Regarding investments in U.S. sawmills, it’s important to understand that timber in the U.S. South often comes from plantation-style forestry, which is more similar to practices in Europe or Japan. These plantations involve thinning, pruning, fumigating, and watering. In contrast, forests in the Pacific Northwest and Canada are natural. While replanting is done in Canada, silviculture practices like thinning and pruning are not typically employed. In the U.S. South, private timberland owners often supply mills; in some cases, mills own the timberland themselves. In Canada, the timber supply comes predominantly from public lands designated for forestry, excluding parks, Indigenous lands, or other protected areas. The British Columbia Interior now has more lumber production in the U.S. than in Canada.

Jacobsen: How does this influence the dynamics of manufacturing and distribution? Can you explain how larger operators manage their operations geographically and nationally?

Kosman: When discussing production volume, it’s essential also to consider value. For instance, the price of a Southern pine 2×4 compared to an SPF 2×4 can vary significantly. Companies operating cross-border, such as Interfor, Canfor, and West Fraser, have substantially invested in U.S. facilities. Understanding why they invest in these areas requires considering a few critical factors.

First, all lumber in North America is sold in U.S. dollars, even when a Canadian buyer purchases lumber in Canada. Suppose the Canadian dollar is weak, as it has been for much of the past decade. In that case, this creates an enormous advantage for Canadian producers. For example, the exchange rate is around 75 cents, which has been for several years but falls to 69 cents. In that case, Canadian producers gain additional profit from the currency difference.

However, production costs in Canada are generally higher. To address this, companies have shifted investments to U.S. facilities, where costs can be lower. These companies assess multiple factors, such as log supply, log costs, production costs, market prices, demand, housing starts, and geographic advantages. This allows them to decide where to produce for a particular period strategically.

Jacobsen:Trade policies and tariffs also play a significant role. Do these policies have a real impact on lumber production and distribution?

Kosman: Yes, absolutely. Softwood lumber has been subject to tariffs and duties for decades. We’re currently in what’s referred to as Softwood Lumber Dispute #5. Historically, around 85% of Canadian lumber was sold into the U.S., but this has dropped to between 60% and 65% over the past 20 years. This shift is largely due to Canada diversifying its markets, with significant new exports to Asia to avoid U.S. duties.

When duties are imposed, as happened after the expiration of the previous softwood lumber agreement in 2016, it creates challenges for Canadian mills. During economic slowdowns, such as after the 2006 housing crash, mills often cannot pass the cost increases caused by duties onto consumers. This forces mills to absorb the losses. By contrast, when the market is strong, as in the 1990s, mills can better offset duty costs by increasing prices for end users.

Currently, duties remain a significant constraint for Canadian mills, as the housing market is not robust enough to absorb additional costs effectively.

Jacobsen: Environmental challenges, such as pine beetle infestations and wildfires, are significant factors affecting lumber production. Wildfires, for example, are currently in the news, particularly in Los Angeles. However, why is the U.S. housing market potentially more important than these environmental challenges? This is not to diminish the effects and importance of wildfires and infestations but rather to explore the broader context.

Kosman: It’s important because these events, like wildfires or storms, can have two primary impacts. First, they can reduce the timber supply available to mills. For example, if a wildfire occurs in a timber supply area—not a park—it directly affects the volume of timber that can be harvested. Second, events like hurricanes can create an immediate need for reconstruction.

For instance, at the end of last year, Hurricane Helene caused significant damage in the Appalachian region, including the Carolinas and parts of Florida, particularly in low-lying areas prone to flooding. The homes affected were already occupied, so this reconstruction demand was separate from new housing construction driven by demographic trends, such as young people entering the housing market.

Hurricane Helene also impacted timber areas and sawmill operations. Three major sawmills—two West Fraser mills in Florida and one Canfor mill in Georgia—suffered disruptions. These included power outages lasting nearly two weeks and destroyed roads, which affected production and transportation. We’ve seen similar scenarios, such as during the atmospheric river event in 2022, where environmental disasters impacted sawmills and the need for rebuilding in affected areas.

In contrast, the fires in Los Angeles are primarily in parklands, which are not part of the timber supply basket. While it is devastating to see forests burn, these trees were never intended for sawmills. The primary loss in such cases is livable structures, not timber resources.

Jacobsen:So, when interest rates decrease, home sales and construction tend to rise, creating a larger demand for lumber. Is it fair to say that this trend in interest rates outweighs the short-term effects of environmental factors, such as wildfires or pine beetle infestations?

Kosman: Yes, that’s correct. Interest rates have a much broader and more sustained impact on housing and lumber markets than seasonal events like wildfires or infestations. For example, from 2006 to 2017, the U.S. housing market was depressed due to the fallout from the zero-interest mortgage crisis, which caused many people to lose their homes.

During that time, the U.S. was underbuilt, requiring around 1.5 million annualized new housing starts to keep up with population growth. That figure has now risen to 1.7 million, meaning we’re still not meeting the basic housing demand—not considering speculative investments or second-home purchases, but purely demographic needs.

With inflation easing and interest rates loosening up, we’re seeing an uplift in housing markets. It’s not a dramatic jump but rather a moderate, sustained increase. Last year, we expected housing construction to pick up, and I anticipate a noticeable increase this spring. This trend will likely continue over the next few years, driven by the basic need for housing, compounded by reconstruction efforts following storms and other disasters.

Jacobsen: What about U.S. trade barriers, such as duties and tariffs, which have been entrenched in the industry for a long time? You mentioned that the industry has acclimated to these mechanisms. Are these trade barriers fair or primarily designed to serve domestic interests?

Kosman: Trade barriers like duties and tariffs on softwood lumber are longstanding issues in the industry. The U.S. has implemented these measures for decades, and we’re currently in what’s referred to as Softwood Lumber Dispute #5. Over the years, Canadian producers have adapted to these policies by diversifying their export markets.

Historically, 85% of Canadian lumber was sold into the U.S., but that figure has dropped to between 60% and 65%. Much of the difference is now exported to Asia to avoid U.S. duties. These trade barriers often serve domestic U.S. interests under the guise of protecting local industries, but whether they’re fair is a complex question.

In an economic slowdown, such as after the 2008 housing crash, duties can severely constrain Canadian mills as they struggle to pass on the increased costs to consumers. In stronger markets, mills have more flexibility to offset these costs. However, these policies often create inefficiencies and distortions in the market, affecting producers and consumers on both sides of the border.

The benefit primarily lies with the United States, but I must be careful about framing this. U.S. lumber industry analysts at timberland investment conferences have said that the softwood lumber duty functions as an “every ten-year dividend” for U.S. timberland owners.

A special interest group that lobbies Congress to implement the softwood lumber duty. While this group includes some sawmills, it primarily represents timberland owners. They argue that Canada’s timber supply largely comes from public land and is not governed by free-market mechanisms. They claim that because the government sells Canadian trees, the prices are artificially lower, effectively subsidizing Canadian sawmills and allowing them to sell lumber in the U.S. at lower costs than U.S. producers can achieve.

In Canada, timber is owned federally by the Crown, but the provinces manage access to it. The two largest provinces for timber supply are British Columbia and Quebec. Historically, especially in the 1980s, British Columbia set timber prices based on provincial budget needs, which was not a market-based approach. This practice gave the U.S. a legitimate grievance. However, British Columbia has adopted a more market-responsive pricing system over the past decade. Timber prices are reassessed every three months and tied to lumber prices. When lumber prices go down, the cost of logs decreases, and when lumber prices rise, log prices increase.

Despite these changes, the U.S. special interest group continues to push for duties, largely disregarding the market reforms.

Another critical aspect, often overlooked, is the financial dynamics behind these disputes. Historically, negotiations for settlement only begin when the amount collected from duties reaches approximately US$5 billion. Observers who have followed the issue for decades argue that the dispute is less about policy, pricing, or subsidies and more about dividing this significant financial pot.

For example, during the last settlement, the U.S. Commerce Department had collected US$5 billion in duties. Although the U.S. lost the case at both NAFTA and the WTO and was ordered to return the money, they refunded only US$4 billion. The remaining US$1 billion was retained and distributed among members of the Softwood Lumber Coalition. Furthermore, due to exchange rate fluctuations, the returned US$4 billion was worth only US$3.6 billion at the time, adding to Canada’s financial losses.

I’ve heard that the amount collected is approaching US$7 billion, which exceeds the usual threshold for initiating settlement discussions. Canada and the U.S. may be already negotiating a resolution. Still, these negotiations typically remain confidential until a deal is finalized.

Jacobsen: Why do these negotiations only become public knowledge at the final phase, after settling everything?

Kosman: Regarding transparency during the negotiation process, I don’t know why it’s so tightly controlled. Sometimes, if I speak to someone personally at a conference—someone directly involved as a petitioner, subject to the duty here in Canada—they’ll provide some insight.

The duty itself is applied based on specific data. When lumber crosses the U.S. border, the duty is calculated on the pro forma invoice presented at customs. It depends on the shipment volume, whether it’s in a truck or railcar, and the price. Companies must show their invoices detailing the volume and sales price of the wood.

Companies know what’s happening because the government asks them for this information. Occasionally, I’ll hear from someone kind enough to share updates, like “there’s some movement on this issue.” However, for the most part, even those involved don’t know the full details. It’s a very unusual and opaque process.

I can tell you this: many sawmill manufacturers in the U.S. do not support the duty. Their perspective is, “If Canadian wood is better and priced higher, let the market decide. Customers can choose whether to pay for Canadian wood or a domestic product.” This issue is incredibly divisive.

The driving force behind the duty is a special interest group—it’s not a widespread, public initiative. It’s not as though individuals like Joe Smith in Alabama are part of the softwood lumber duty. This bilateral issue is negotiated directly between Trade Canada and the U.S. Commerce Department.

That’s quite an unusual and complex situation. Many people hold strong opinions about it, but most people do not explain this level of depth.

Jacobsen: Do you have any final points or questions?

Kosman: No, this was far more detailed than what I usually hear.

Jacobsen: Glad to hear it! Thank you for your time. I appreciate it.

Kosman: Okay, talk to you later.

Jacobsen: Bye.

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